Openwave Going Nowhere Fast

Openwave Systems Inc. (OPWV) describes itself as one of the world’s leading innovators of software applications and infrastructure designed to enable revenue-generating, personalized services, including merchandising and advertising, which converge the mobile and broadband experience across devices.

The company announced Q1 earnings ending September 30, 2007. Total revenue was $63.0 million, lower than YoY where Openwave reported revenues of $83.8 million. Losses have been accumulating in their server and client business, creating rumblings of a potential buy-out. Potential buyers have been speculated to include Microsoft, Nokia, and Hewlett-Packard.

One note of good earnings news for Openwave was that its Q1 total operating expenses decreased from $74 million in 2006 to currently $49.4 million in 2007.

As grim as these figures sound, the company holds firm the upper lip stating results demonstrate that because of continued progress in financial controls and increased operational efficiency, Openwave is seeing significant improvement to the bottom line. I would hope so given that it’s common sense to reduce expenses if you’re spending more than you’re taking in. But beyond basic budgeting 101 with buzzword gravy on top, is Openwave actually steering itself with any strategy that would give potential investors confidence?

Openwave did shuffle management a bit with the addition of Susan Davies in a newly created position of senior vice president of quality assurance (QA). This was after the departure of its former CFO and replacement of its vice president of product management in Q4. Davies’ background brought in similar experience from her time at Peoplesoft and Oracle. But it’s going to take more than an additional executive to create systemic improvement. The company needs to develop a full-blown strategy for a turn-around, and that’s not in QA.

This is a company with enough big players swirling over it. It’s already had a few nibbles, with the most notable being an offer by Harbinger Capital Partners and Sybase. Whether it wants it or not, the FOR SALE sign is firmly planted in Openwave’s front lawn. It is not clear, however, whether the “right” larger players truly have interest in the company.

If you’re looking at Openwave as a contrarian bet with a stock price at $3.21/share, don’t. You’re better off with Sun Microsystems if you want to go cheap (at least it was before the 1-for-4 reverse split this week). Sun has a strategy, Openwave doesn’t.

OPWV is a stock that has 4 things dragging it down:

• Deteriorating core business.
• Pressure to sell.
• Uncertain new product roadmap and upside.
• Integration/rationalization costs.

And to add to the problems, on November 1, 2007, U.S. District Judge Denise Cote denied Openwave’s request to throw out a shareholder lawsuit against OPWV and former and current officials over their roles in a suspected plan to backdate stock options.

Given all of the above, and no profit on the horizon, why would anyone want to invest in Openwave now? Maybe the hope of a buyout will spike the stock value up, but Openwave is a clunker compared to some of the better opportunities available even for a buy-out. This company seems to be going absolutely nowhere fast.